Attention Sergey! Russia - What Now?

LE

An email www.stratfor.com send me every week or two for marketing purposes. I thought you might be interested:

Russia: What Now?
By Peter Zeihan

For the past two weeks, the Kremlin has been issuing a flood of seemingly contradictory statements through officials such as Gazprom CEO Alexei Miller, deputy presidential administration heads Vladislav Surkov and Igor Sechin, Deputy Prime Ministers Dmitry Medvedev and Sergei Ivanov, Foreign Minister Sergei Lavrov and even President Vladimir Putin.

One day, Miller seemed to obliquely threaten European natural gas supplies; the next, Gazprom granted the Ukrainians another three months of exports at less than half European market rates. On another day, Lavrov proposed sharply limiting discussion at the upcoming Group of Eight (G- summit in St. Petersburg to preclude topics, such as Chechnya, that the Russians find uncomfortable; this was followed by a statement from Lavrov's office declaring no topic taboo. On another front, Ivanov waxed philosophic about the might of the Russian military and warned of Western encroachment, while Surkov noted that Russia would never modernize without robust and friendly relations with the West. At one point, the Russians could be seen aggressively lobbying for Iran's right to a full civilian nuclear program, and then just as empathically noting their concerns about nuclear proliferation.

These statements and others like them not only seem disjointed -- they are disjointed. These disconnects are the public symptoms of an underlying and systemic problem. Briefly stated, Russia -- after 25 years of the Andropov doctrine -- finds itself in a deepening crisis, with no immediate or effective solutions apparent.

The issues with which Russia grapples are multifaceted -- and they have only grown in scale since they were first recognized by the leaders of Andropov's generation.

Demographically, the country is in terrible shape: The population is growing simultaneously older, smaller and more sickly. The number of Muslims is growing, while the number of ethnic Russians is declining. Nearly all of the economic growth that has occurred since the 1998 financial crisis has stemmed from either an artificially weak currency or rising energy prices, and there are echoes of the Soviet financial overextension after the 1973 and 1981 oil price booms. NATO and the European Union -- once rather distant concerns -- now occupy the entire western horizon, and they are steadily extending their reach into a Ukraine whose future is now in play.

More recently, another set of concerns -- encapsulated in the START treaty -- have cropped up as well. The treaty, which took force in 1991 and obliges the United States and Russia to maintain no more than 6,000 nuclear warheads apiece, expires in 2009, and the United States is not exactly anxious to renew it. Among American defense planners, there is a belief that the vast majority of the Russian nuclear defense program is nearing the end of its reliable lifecycle, and that replacing the entire fleet would be well beyond Russia's financial capacity. From the U.S. point of view, there is no reason to subject itself to a new treaty that would limit U.S. options, particularly when the Russia of today is far less able to support an arms race than the Soviet Union of yesteryear.

With all of that, it is becoming clear to leaders in Moscow that something must be done if Russia is to withstand these external and internal threats. The government is casting about for a strategy, but modern Russian history offers no successful models from which to work.

The Andropov Doctrine

Modern Russian history, of course, dates from before the fall of the Soviet Union -- beginning with Yuri Andropov's rise to power in November 1982. As someone who was in charge of the KGB, in a state where information was tightly compartmentalized, Andropov came into office knowing something that did not become apparent to the rest of the world for years: Not only was the Soviet Union losing the Cold War, but it was dangerously close to economic collapse. The West had long since surpassed the Soviets in every measure that mattered -- from economic output to worker productivity to military reach. In time, Andropov was convinced, Moscow would fall -- barring a massive change in course.

Andropov's plan was to secure money, managerial skills and non-military technologies from the West in order to refashion a more functional Soviet Union. But the Soviets had nothing significant to trade. They did not have the cash, they lacked goods that the West wanted, and Andropov had no intention of trading away Soviet military technology (which, even 15 years after the Cold War ended, still gives its U.S. counterpart a good run for the money). In the end, Andropov knew that the Soviet Union had only one thing the West wanted: geopolitical space. So space was what he gave.

It was what subsequent leaders -- Gorbachev, Yeltsin, and Putin after them -- gave as well. The one common thread uniting Russian leaders over the past quarter-century has been this: the belief that without a fundamental remake, Russia would not survive. And the only way to gain the tools necessary for that remake was to give up influence. Consequently, everything from Cuba to Namibia to Poland to Afghanistan to Vietnam was surrendered, set free or otherwise abandoned -- all in hopes that Russia could buy enough time, technology or cash to make the critical difference.

This was the strategy for nearly 25 years, until the loss of Ukraine in the Orange Revolution raised the specter of Russian dissolution. The Russians stepped away from the Andropov doctrine, abandoned the implicit bargain within it, reformed the government under the leadership of pragmatists loyal to Putin, and began pushing back against American and Western pressure.

It has not gone altogether well.

The Crux

While the Russians have hardly lost their talent for confrontation when the need arises, the confrontations they have initiated have been countered. The Russians are attempting to push back against the rise of American influence in their region with any means possible, with the goal of distracting and deflecting American attention. But there is an element of self-restraint as well: The pragmatic leaders now in power realize full well that if the Kremlin pushes too hard, the very tools they use to preserve their influence will trigger reactions from the United States and others that will only compound the pressure.

In the past seven months, Moscow has temporarily shut off natural gas supplies in an attempt to force Western European powers to assist Russia in reining in portions of its near-abroad that Moscow viewed as rebellious. The response from the Europeans, however, has been to begin exploring ways of weaning themselves from Russian energy supplies -- something that was never contemplated during Cold War-era Red Army maneuvers. Meanwhile, Moscow has attempted to engage China in an alliance that would counterbalance the United States, and China has taken advantage of this overture to extend its own reach deep into Central Asia. Meanwhile, the Russians have tried using arms sales and diplomacy to complicate U.S. efforts in the Middle East. However, they have found themselves being used as a negotiation tool by the Iranians, only to be discarded. In sum, Russia's weight does not count for nearly as much as it once did.

Watching the Kremlin these days, one has a sense that there is an intense argument under way among a group of old acquaintances -- all of them fully aware of the circumstances they face. This probably isn't far from the truth. Putin has cobbled the current government together by co-opting factions among the siloviki, reformers and oligarchs who would be beholden to him -- all of whom recognize the strengths and weaknesses of the ideologies of their predecessors.

For the first time in decades, those calling the shots in the Kremlin not only agree on the nature of Russia's problems and are not really arguing amongst themselves, but they also are no longer willing to subject their country to the false comfort of policies driven by ideology, national chauvinism or reformist idealism. This is the most unified and pragmatic government Moscow has known in a generation. But it is a unified and pragmatic government that is grasping at straws.

Russia's leaders all believe that the path the Soviet Union traveled led to failure, and thus they are committed to the logic, rationale and conclusions of the Andropov doctrine. Nevertheless, they also are all realistic and intelligent enough to recognize that this doctrine, too, has failed their country.

And so the Putin government is wrestling with a fundamental question: What now?

Russia's Options

With no good options available -- and all of the bad ones having been tried in some manner already -- there is a proliferation of reactive, short-term policies. Everyone who has some authority is experimenting on the margins of policy. Medvedev tinkers with Ukrainian energy policy, while Ivanov rattles the nuclear saber -- and Putin tries to make the two seems like opposite sides of the same coin while preparing for the G-8 talks. Kremlin officials are trying to coordinate, and there is little internal hostility -- but in the end, no one dares push hard on any front for fear of a strong reaction that would only make matters worse. The strategy, or lack thereof, generates immense caution.

Human nature, of course, plays a part. No one wants to be personally responsible for a policy that might result in a national setback; thus, government officials seek full buy-in from their peers. And it is impossible to get full backing from a group of intelligent men who all recognize the history and risks involved. Just because one knows that the long-term penalty of inaction is death does not mean there is no hesitancy about trying experimental cures.

But experimental cures are practically all that is left for Russia. Wielding energy supplies as a weapon will not buy Moscow greater power; that can achieve short-term goals, but only at the cost of long-term influence as customers turn to other solutions. And while a partnership with China is attractive by some measures, the Chinese want Russian energy supplies and military technology without the politico-military baggage that would come with a formal alliance. Moscow retains the capacity to generate endless headaches for Western, and particularly American, policymakers, but the costs of such actions are high and -- even considering the weakness of the current administration in Washington -- only rarely worth the consequences.

All of this leaves three possibilities for the pragmatists. One is for Putin's team to ignore history and everything they know to be true and play geopolitical Russian roulette. In other words, they can push for confrontation with the West and pray that the counterstrikes are not too horrible. The second is to do nothing -- fearing the consequences of all actions too much to take any -- or continue with the recent trend of rhetorical spasms. Under this "strategy," the Russian government would succumb to the problems foreseen by Andropov a generation ago.

The third possibility is a leadership displacement. Just as Putin displaced Russia's oligarchs, reformers and siloviki because he felt their ideas would not translate into success for Russia, those power groups feel the same way about the Putin government. The option, then, is for one of these groups to somehow displace the current government and attempt to remake Russia yet again. Several caveats apply: It would have to be a group cohesive enough to take and hold power, committed enough to a defining ideology to ignore any deficiencies of that ideology, and either trusted or feared enough by the population to be allowed to wield power.

Russia's oligarchs are neither united nor trusted, and historically have placed self-interest far above national interests. The reformers, while united, are clearly not trusted by the populace as a whole, and the idealism of the group that implemented the disastrous shock therapy in the early 1990s is long gone.

The siloviki, however, are broadly cohesive and populist, and they have not allowed economics or politics to get in the way of their nationalism or ideological opposition to capitalism and the United States. Moreover, they have little fear of using the military club when the natives -- or the neighbors -- get restless.

Assuming Russia does not become paralyzed by fear, it appears destined to return to a model in which the nationalists, military and intelligence apparatuses call the shots -- a sort of Soviet Union with a Russian ethnic base. If this is the case, the only question remaining is: Who will lead the transformation?

With every passing day, Putin seems less fit for the role.
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LE

Andy. Is it about modern Russia? It seems to me that the author fell asleep in 1998 (during the financial crisis) and has waken up just yesturday and is absolutely unaware about real state of Russian economy.

If you have a lot of money then it would be much easier to solve any problems.

It is a reality: Russian economy is healthy and fast developing. Russia is becoming richer and stronger.

As for the relations with the West then it depends mainly on the West itself.

By contrast, our American friends prefer a confrontation. They don't wish to be restricted by any treaties in the defence sphere. How it would end? USA could have 5, 10, 20 time more nuclear warheads but 1 infinity is equal to 20 "infinities" so Russian replay would assymetrical and very cost effective.

Btw, I sent my own question to mr.Putin. Alas, BBC decided that it is not interesting enough to be publiushed.

TNK is huge Russian oil company. December 1999 mr.Putin (a PM that time) signed a privatisation deal. 50% of state-owned shares were sold to Alpha Group (Friedman, Aven, Vekselberg) for $130mlns. January 2000 mr.Putin became a president and in 2003 he signed another deal. Alpha Group sold 50% of TNKs shares to British Petroleum for $6bln. However it is much lower its real cost.

Mr.Putin! Do you fear to be jailed for corruption if you would lost power? (though I doubt that it would happen soon).